No electric vehicles on the market today qualify for the new EV tax credit

Congress is poised to approve new tax credits for electric vehicles but the rules are written in such a way as to effectively disqualify every EV that is currently on the market today.

Most electric vehicles run on Chinese-made batteries. The US only accounts for 8 percent of the battery market, but the nation has a lock on 76 percent. Democrats agreed to provisions that would require eligible vehicles to use batteries that are made in North America in order to get a deal passed.

The Inflation Reduction Act of 2022, which passed the Senate this weekend in a party-line vote, requires batteries to have at least 40 percent of materials from North America or a US trading partner by 2024 in order to be eligible for a tax break. The components of the battery would have to be made in North America.

If a battery contains minerals that were mined, processed, or recycled by a foreign entity, it would not be eligible for the credit. The federal government considers China to be a foreign entity of concern.

Democrats, including West Virginia Senator Joe Manchin, who negotiated the deal in secret with Senate Majority Leader Chuck Schumer, are campaigning on a tough-on-China message. Every EV on the market would be disqualified by the new requirements, according to the auto industry.

There are currently 72 electric vehicle models for sale in the United States, according to the Alliance for automotive innovation. 70 percent of the models are not eligible for the tax credit. None of them would be eligible for the full credit by 2029.

John Bozzella, president and CEO of the alliance, said in a post that no vehicles will be eligible for the purchase incentive over the next few years. It is going to be a major blow to our electric vehicle sales goal.

The domestic supply chain needs serious investment, but not at the expense of customer incentives, according to Bozzella. Tax credits are needed to boost sales of EV's until battery costs are low enough to make them comparable to internal combustion engine vehicles.

The precedent that allowed many manufacturers to avoid "Buy America" rules that were enacted as part of last year's bipartisan infrastructure law gave automakers the ability to request waivers from the requirements. Most states are able to waive the requirement that new road and bridge projects use domestically produced steel in favor of procuring cheaper steel from overseas.

The Zero Emission Transportation Association doesn't want to get waivers yet. Compliance deadlines could be extended by a year or more, according to the lobbying group.

It won't be difficult. Sixty-five percent of the parts used to make the Model 3 are from the US and Canada, according to the company's website. Four of the EV maker's models are at the top of the automotive index, which measures the amount of US manufactured content in vehicles.

It will take time before the US is able to challenge China in the battery market. Ford and South Korean battery manufacturer SK Innovation are spending $11.4 billion on several new factories in Tennessee and Kentucky. The company said it would build a plant in North Carolina. Indiana was chosen by the parent company of Dodge, Jeep, and Chrysler to build its first battery factory.

Volkswagen wants to have six battery cell production plants up and running by the year 2030. 250GWh is the equivalent of the world's current battery cell production capacity.

GlobalData predicts that global battery production will increase from 95.3GWh in 2020 to 410.5GWh in 2024.

The Republicans tried to make the supply chain requirements even tougher. An amendment was introduced by Senator Marco Rubio (R-FL) that would require 100 percent of battery materials to besourced in North America immediately. The amendment wasn't passed by the Senate.